On 14 June 2017, the US Senate passed an amendment to the Countering Iran’s Destabilizing Act of 2017 (“S.722” or “Iran Sanctions Bill”) by a wide 97-2 margin. The amendment has been labelled Countering Russian Influence in Europe and Eurasia Act of 2017 (“CRIEEA” or the “Amendment”).
By way of broad overview, if enacted, CRIEEA would (i) expand existing sanctions on Russian individuals involved in human rights abuses; (ii) impose new sanctions on persons conducting cyberattacks on behalf of the Russian government, supplying weapons to Syria’s government, engaging in significant transactions with the Russian defence and intelligence sectors or those deemed to have interfered in the 2016 US elections; (iii) consolidate and codify sanctions on Russia’s energy and financial sectors currently imposed by executive order; and (iv) impose new sanctions on certain areas of Russia’s commodities and transport sectors.
It is important to note that CRIEEA is not law at present and it must still pass through a number of further legislative steps before it can be enacted as law. We consider it likely that the bill eventually passed to the President for signature will differ from CRIEEA. Whilst it is not possible to predict with any certainty what changes will be made, for the reasons set out in this note we would expect the provisions enacted as law to be less restrictive than the provisions of CRIEEA.
Energy and shipping sectors
Of specific interest to the energy sector is that, if enacted in its current form, CRIEEA would allow for new measures targeting Russian and overseas entities supporting or investing in Russian “export pipelines”, including the Nord Stream 2 (“NS2”) pipeline to Europe. Certain European energy companies and lenders involved in financing NS2, and other unconventional oil projects, are likely to be affected by the new restrictions if they come to pass.
CRIEEA also provides for amendments to Directive 4 of Executive Order 13662 (“Directive 4”). Such amendments target certain unconventional oil projects (“production for deepwater, Arctic offshore, or shale projects”) outsideof Russia “in which a Russian energy firm is involved”. Currently Directive 4 targets only unconventional oil projects within Russia, or in a maritime area claimed by Russia, and in which a targeted Russian energy company is involved.
The oil sector is targeted further by the proposed amendments to The Ukraine Freedom Support Act of 2014 (“UFSA”). The UFSA currently specifies that the President “may impose” certain sanctions on a non-US person who knowingly makes a significant investment in certain Russian crude oil projects. CRIEEA amends this provision so that the President “shall impose” such sanctions, “unless the President determines that it is not in the national interest of the United States to do so”. Similarly, CRIEEA proposes that the President “shall impose” certain sanctions on foreign financial institutions who knowingly engage in transactions involving defense and energy sectors. We note, however, that there is still room for manoeuvrability and discretion by the President.
CRIEEA also provides for the tightening of restrictions on the financing of, or transactions in, debt issued by any person named on a related sanctions list. Such persons currently include designated persons in the Russian financial services sector and designated persons in the Russian energy sector. It is proposed that Directive 1 of EO 13662 will be modified to impose a 14-day maturity limit (currently at 30 days) and Directive 2 of EO 13662 will be modified to impose a 30-day maturity limit (currently at 90 days). The list of persons determined to be subject to one or more of the directives under EO 13662 can be found here.
The shipping industry is also targeted by CRIEEA, albeit in wider and more uncertain terms. Section 1(a) of EO 13662 provides for the blocking of property and interests in property of certain persons contributing to the situation in Ukraine, as determined by the Secretary of the Treasury, in consultation with the Secretary of State. Currently, the first category of persons subject to section 1(a) is persons operating in certain sectors of the Russian Federation economy, such as “financial services, energy, metals and mining, engineering, and defense and related material”. If enacted, CRIEEA would broaden this category to include state-owned entities (“SOE”) “operating in the railway, shipping or metals and mining sector[s] of the economy of the Russian Federation”. The terms “railway, shipping or metals and mining sector[s]” are all undefined, and as such it is possible that a broad range of SOEs may be affected.
With respect to Iran, CRIEEA mandates the imposition of sanctions against people and entities who materially contribute to Iran’s ballistic missile programme (the President currently has discretion to impose those sanctions by executive order). This provision includes the imposition of secondary sanctions, which apply to non-US people and entities. It also authorises the President to impose asset freezes and travel bans for human rights violations in Iran, and asset freezes on people and entities associated with Iran’s Revolutionary Guard Corps or anyone that knowingly contributes to the sale or transfer of arms or related services to Iran.
Section 216 of CRIEEA imposes a congressional review regime with respect to any Presidential “action” that would modify or terminate the existing sanctions regime against Russia. In effect, it seeks to constrain, but not eliminate, the President’s traditional discretion in this area. This mechanism would enable Congress to block changes to the existing sanctions regime through legislation, but it does not require Congressional approval before the imposition of new sanctions.
The House of Representatives must now pass its own bill. If there are differences between CRIEEA and the bill passed by the House of Representatives, these must be reconciled before the bill can be passed to the President for signature. The President has discretion to veto the bill, however it has been reported that the Senate is prepared to override a Presidential veto should the situation arise. In our view, it seems likely that CRIEEA will be modified before it is presented to President Trump for signature, in order to discourage a Presidential veto.
The provisions of CRIEEA are not law at present and, as discussed above, there are a number of further legislative steps to be overcome before it can be enacted as law. As such, there remains scope for modification, relaxation and possibly even abandonment. Nevertheless, CRIEEA demonstrates that there is significant support in the US Congress for a tightening of Russia-related sanctions.
However, we would expect that any law enacted will be somewhat less restrictive than CRIEEA. Europe’s reaction to CRIEEA has not been positive. Most notably, Germany and Austria, whose governments and companies are heavily involved in NS2, issued a joint statement in which they described CRIEEA as a “new and very negative quality in European-American relations […] Europe’s energy supply is a matter for Europe, not the United States of America”. We are not able to say with any certainty which elements of CRIEEA are likely to be retained and which are likely to be discarded or softened. We would expect that the codification of the existing sanctions will survive, however it remains to be seen in respect of the more restrictive measures targeting the shipping and energy sectors.